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Hopp & Stephan, 2012 1
The influence of socio-cultural environments on the performance of nascent
entrepreneurs: Community culture, motivation, self efficacy and start-up success.
Dr. Christian Hopp*
Department of Business Administration
Chair for International Personnel Management
University of Vienna
A-1210 Vienna, Austria
Tel: +43-1-4277-38166
Dr. Ute Stephan
Institute of Work Psychology (IWP) &
Centre for Regional Economic and Enterprise Development (CREED)
University of Sheffield Management School
Mushroom Lane, Sheffield, S10 2TN, United Kingdom
+44 (0)114.222 32 86
*Both authors contributed equally to this manuscript and are listed in alphabetical order.
Acknowledgements: We thank Ian Macdonald and Tomasz Mickiewicz for valuable comments. All errors remain our own.
This is a pre-print version of the manuscript for personal use. Please see
http://dx.doi.org/10.1080/08985626.2012.742326 for the final version.
Full citation: Christian Hopp & Ute Stephan 2012. The influence of socio-cultural environments on the performance of nascent entrepreneurs: Community culture, motivation, self efficacy and start-up success. Entrepreneurship & Regional Development, 24:9-10, 917-945
Hopp & Stephan, 2012 2
The influence of socio-cultural environments on the performance of nascent
entrepreneurs: Community culture, motivation, self efficacy and start-up success.
Abstract
The importance of informal institutions and in particular culture for entrepreneurship is a
subject of ongoing interest. Past research has mostly concentrated on cross-national
comparisons, cultural values, and the direct effects of culture on entrepreneurial behavior, but
in the main found inconsistent results. The present research adds a fresh perspective to this
research stream by turning attention to community-level culture and cultural norms. We
hypothesize indirect effects of cultural norms on venture emergence. Specifically that
community-level cultural norms (performance-based culture and socially-supportive
institutional norms) impact important supply-side variables (entrepreneurial self-efficacy and
entrepreneurial motivation) which in turn influence nascent entrepreneurs’ success in creating
operational ventures (venture emergence). We test our predictions on a unique longitudinal
data set tracking nascent entrepreneurs venture creation efforts over a 5 year time span and
find evidence supporting them. Our research contributes to a more fine-grained understanding
of how culture, in particular perceptions of community cultural norms, influences venture
emergence. Based on these findings we discuss how venture creation efforts can be supported.
Our research highlights the embeddedness of entrepreneurial behavior and its immediate
antecedent beliefs in the local, community context.
Keywords: Culture, cultural norms, PSED II, entrepreneurial process, self-efficacy,
motivation, person-culture fit, endogeneity
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The influence of socio-cultural environments on the performance of nascent
entrepreneurs – an instrumental variable approach
1. Introduction
Entrepreneurship is important for national economies as it contributes to job creation,
productivity and economic growth (Parker, 2009; Van Praag and Versloot, 2007). Our
understanding of individual factors enabling and hindering entrepreneurship has significantly
increased, however, it is only relatively recently that researchers have addressed the question
of how embedded entrepreneurial behavior is in national institutions. In particular, cross-
national research has yielded valuable insights into formal institutions influencing
entrepreneurial behavior (e.g., Aidis, Estrin and Mickiewicz 2010; Bowen and DeClercq,
2008; Djankov, La Porta, Lopez-de-Silanes and Shleifer 2002; Levie and Autio, 2008; Van
Stel, Storey and Thurik, 2007). By contrast, little research has addressed the role of informal
institutions, including culture. This is surprising in light of how important to the shaping of
economic behavior informal institutions are considered to be by different disciplinary
approaches. This includes disciplines such as institutional economics, institutional sociology,
international business and cross-cultural psychology (e.g., Hayton, George and Zahra 2002;
North, 2005; Stephan and Uhlaner 2010; Thornton, Ribeiro-Soriano and Urbano 2011;
Uhlaner and Thurik 2007).
The present research regards entrepreneurship as an economic behavior embedded in an
institutional context and contributes to our understanding of the mechanisms by which
informal institutions – in particular the perception of socio-cultural norms – impact the
business creation process. We argue that the impact of socio-cultural norms on entrepreneurial
start-up success may be mostly indirect through supply-side variables. In particular, we
suggest that culture may impact on important individual beliefs, which in turn determine
whether or not nascent entrepreneurs succeed in creating operational ventures. We focus on
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cultures influence on two key individual beliefs: entrepreneurs’ motivation to work hard to
create an operational venture (start-up motivation) and their confidence that they have the
skills required to create an operational venture (entrepreneurial self-efficacy). We draw on the
person-culture fit perspective (Tung, Walls and Frese 2007) to suggest that the perceived
cultural context impacts which nascent entrepreneurs persevere and which ones select out of
the start-up up process.
In particular, we propose that the perception of performance-based socio-cultural norms
and the perception of socially supportive institutions (state and local government, financiers
and community groups) independently impact key beliefs and both subsequently relate
positively to nascent entrepreneurs’ success in creating operational businesses. (Hereafter we
refer to the successful creation of an operational business as venture emergence.) It is likely
that cultural norms in a community lead to endogenous matching such that those
entrepreneurs who better fit into the cultural context are more likely to succeed. In particular,
strongly motivated and highly self-efficacious entrepreneurs will thrive in performance-based
socio-cultural environments. Additionally, a socially-supportive institutional environment
enables nascent entrepreneurs to access important resources to create their business, which
has a positive motivating effect and also strengthens nascent entrepreneurs’ self-efficacy, such
that they will be able to succeed in their venture creation efforts.
Our research also provides a fresh perspective on the role that informal institutions play
in entrepreneurship by highlighting the importance of the community context. Community has
been variously defined (Rattan and Welter, 2011). We adopt a common geographic definition
of a community and define the community as a proximal spatial area which is smaller than a
state or county. A community captures an area such as a small town, a village, a collection of
small villages, or a greater neighborhood within a larger city (see for instance Kilkenny et al.,
1999 for a similar definition). This concentration on a community perspective can usefully
complement past research, which has focused on the national context (e.g. Stephan and
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Uhlaner 2010). Compared to national culture, community-level cultural norms reflect a more
proximal context within which entrepreneurial action takes place. Community culture is both
influenced by national culture and also distinct from it. Such a perspective is in line with
research highlighting within-nation, regional heterogeneity in culture, entrepreneurial
attitudes and behavior (Davidsson, 1995; García-Cabrera and Garcia-Soto 2009; also Tung,
2008). It is also consistent with the broader view that sub-national units (e.g., regions,
organizations) have distinctive cultures that are nested within broader national cultures
(House, Hanges, Javidan, Dorfman and Gupta, 2004; Leung, Bhagat, Buchan, Erez and
Gibson, 2005). The purpose of the present research is it to suggest that community-level
cultural norms are a useful concept due to the local nature of entrepreneurial activity (see
below).
We test our proposition using an instrumental variable approach on data from the Panel
Study of Entrepreneurial Dynamics II (PSED). This is a 5-year longitudinal dataset which
follows a population-representative sample of nascent entrepreneurs, i.e. entrepreneurs who
are trying to start a business. In using this representative data set of nascent entrepreneurs our
research overcomes sample selection and survivor biases associated with using convenience
samples of operating businesses. In contrast to cross-sectional designs, the longitudinal nature
of the data set allows us to draw causal conclusions with regard to influences on venture
emergence1.
Our study makes several contributions. First it supplements the literature on the
institutional embeddedness of the entrepreneurial process and particularly the literature on
informal institutions (e.g. Thornton, Ribeiro-Soriano and Urbano 2011; Stephan and Uhlaner,
2010) by adding the focus on community-level cultural norms. Second, past research on
culture and entrepreneurship has concentrated on establishing a direct effect of culture on the
1 Venture emergence is our dependent variable. A venture is said to have emerged when the business that the nascent entrepreneur tried to create generates a positive cash flow and the entrepreneur deems the business to be an operating venture.
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level of entrepreneurship (e.g., Hayton et al., 2002; Stephan and Uhlaner, 2010; Uhlaner and
Thurik, 2007; Wennekers, Thurik, Van Stel, and Noorderhaven, 2007). Our research
investigates whether the important effects of culture on venture emergence are indirect,
mediated though their impact on key individual beliefs (start-up motivation and
entrepreneurial self-efficacy). In this way, our research contributes to a better understanding
of contextual antecedents of start-up motivation and entrepreneurial self-efficacy. Past
research demonstrates important consequences of these beliefs for entrepreneurial outcomes
(venture emergence, venture growth, venture success, e.g., Baum and Locke, 2004; Cassar
and Friedman, 2009; Townsend, Busenitz, and Arthurs, 2010; Rauch and Frese, 2007), yet,
few studies investigate their antecedents.
2. Theory and hypotheses
2.1 Definition of entrepreneurship
We adopt an occupational definition of entrepreneurs as individuals working for their own
account and risk (e.g., Hebert and Link, 1982). We also share the view of entrepreneurship as
a process. That is, business creation is a process taking place over a more or less extended
period of time (e.g. Baron, 2007; Reynolds et al. 2005). One can differentiate an opportunity
recognition phase, in which the venture idea is conceived, from an opportunity exploitation
phase in which the idea is implemented and a venture is created (e.g., Shane and
Venkataraman, 2000). However, the idea might still change during the implementation phase,
shaped by opportunities and constraints the entrepreneur comes across (e.g. Sarasvathy 2001).
The focus of our contribution is very much on this implementation, or nascent, phase. This is
the period starting after an individual has decided to become an entrepreneur and ending with
either the successful creation of an operational business or the disbanding of the venture
creation efforts.
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2.2. Institutions and socio-cultural norms.
Institutions can be defined as the “humanly devised constraints that structure political,
economic and social interaction.” North (1991: 97). Institutions can be formal such as
property rights, but they can also be informal such as codes of conduct, beliefs, values and
norms (also North, 2005). We specifically focus on culture as an informal institution. Culture
can be defined as a cultural group's characteristic way of perceiving its social environment
(Triandis, 1996). Two measures of culture currently seem to dominate cross-cultural research:
cultural values and cultural practices or norms. Contrary to popular belief, this distinction is
important as cultural values and norms are found to be only weakly or even negatively related
to each other (Fischer, 2006; Javidan, House, Dorfman, Hanges and Sully De Luque, 2006).
Past research on culture and entrepreneurship is dominated by the values perspective
which has produced rather inconsistent findings. Some studies report that entrepreneurship
rates are positively related to individualism, low power distance and low uncertainty
avoidance, while other research finds the opposite pattern (see Hayton et al., 2002 for a
review as well as Bowen and DeClercq, 2008; Hofstede, Noorderhaven, Thurik, Uhlaner
Wennekers, and Wildeman, 2004; Wennekers et al., 2007).
Stephan and Uhlaner (2010) suggest that among other things these inconsistent results
may be because values are relatively distal to individual actions such as those required to
create an operational business. We follow Stephan and Uhlaner’s (2010) recommendation and
focus on the perception of cultural norms, also called cultural practices, which are more
directly linked to actual entrepreneurial behavior. For instance, research in social psychology
powerfully shows that individuals are likely to display behavior in accordance with social
norms prevalent in their environment – although they are not necessarily aware of the fact that
social norms influence their conduct (e.g. Cialdini 2005). Thus, the cultural norms perspective
fits well with study of the nascent or implementation phase, i.e. when nascent entrepreneurs
need to act and complete various tasks to successfully launch their venture (e.g. Reynolds and
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Curtis, 2008). Values may be a strong prior predictor of an initial decision to engage in
entrepreneurship. However, for our study’s nascent entrepreneurs this decision has already
been made2.
Notably, Stephan and Uhlaner’s (2010) study found a direct effect of socially-supportive
cultural norms, but not of performance-based cultural norms on national entrepreneurship
rates. They pointed to the fact that entrepreneurs are a minority of the working population
within a country. Thus one reason for their unexpected result with regard to performance-
based culture may be the fact that general measures of culture do not capture aspect relevant
to entrepreneurship particularly well. The present research uses entrepreneurship-specific
measures of culture and has thus the potential to extend their findings.
Whilst culture is most commonly conceptualized on the national level it is also
acknowledged that smaller spatial units such as regions or communities may have a culture of
their own (Davidsson 1995; García-Cabrera and Garcia-Soto 2009; Tung 2008). In the present
study we focus on perceptions of community-level cultural norms, community as defined
above. We feel this is an underdeveloped, but important perspective in culture and
entrepreneurship research. Community-level culture is arguably more proximal to
entrepreneurs’ decisions and actions than national culture, and thus may be more
consequential for the entrepreneurial process. Indeed entrepreneurship has been characterized
as a locally embedded phenomenon, with most entrepreneurs starting businesses where they
reside, were born, or have worked (see Brixy, Sternberg and Stueber, 2012 for a discussion),
thus making community-level culture particularly relevant to the entrepreneurial process.
To summarize, the purpose of the present research is it to suggest that community-level
cultural norms are a useful concept due to the local nature of entrepreneurial activity. To this
end, we hold national culture and national formal institutions “constant” by focusing on
entrepreneurs’ perceptions of community culture within one nation. This is consistent with the 2 In order to be classified as a nascent entrepreneur, individuals need to have indicated that they want to create a business and are currently taking first steps to this end.
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view that national culture and formal institutions are shared within one country. House et al.
(2004) report support for this notion with regard to cultural norms. There is necessarily some
variation in formal institutions in federal nations such as the USA, although their influence on
entrepreneurship may be less important than one would expect. For instance, a recent study by
Bruce and Deskins (2011) found that across the US states, variation in tax laws was relatively
small and had little impact on entrepreneurship. Similarly cross-national studies on, for
instance, the consequences of specific regulation supporting entrepreneurship and the ease of
doing business for entrepreneurship rates yield mixed results (e.g., Bowen and DeClercq,
2008; Van Stel, Storey and Thurik, 2007). In contrast, it seems that it is the fundamental
institutional quality characterized by assurance of individual property rights and strong
independent courts which is most consequential for entrepreneurship and which is arguably of
similar quality across a nation such as the USA (e.g., Aidis, Estrin and Mickiewicz, 2008,
2010; McMullen, Bagby and Palich, 2008; also North, 2005).
2.3. Self-efficacy, motivation and nascent entrepreneurs’ businesses creation success
In the previous section we discussed community-level socio-cultural norms and argued
that they are most immediately relevant to nascent entrepreneurs’ efforts to create an
operational business. If this is accepted, the question arises how community-level socio-
cultural norms would be conducive to entrepreneurs’ efforts, and which particular socio-
cultural norms would be important?
With regard to the first question – the “how” – we suggest that culture will exert its
influence on entrepreneurial behavior particularly through supply-side variables, i.e. variables
that impact the “supply” of potential entrepreneurs within a culture (Verheul, Wennekers,
Audretsch and Thurik 2002; Stephan and Uhlaner 2010). A wide range of human capital and
personality variables have been identified in past research as influencing the supply-side of
entrepreneurship. Evidence from recent meta-analytic studies suggests that the effects of
Hopp & Stephan, 2012 10
specific personality traits and motivations (such as self-efficacy, achievement motivation,
need for autonomy, innovativeness) on business creation and success are stronger than the
effects of more generic human capital variables such as education and various types of work
experience (e.g., managerial, leadership, or entrepreneurship experience) (Rauch and Frese,
2007; Unger, Rauch, Frese and Rosenbusch, 2011). Thus we concentrate on specific
individual beliefs rather than human capital variables.
Our focus is on the implementation phase, i.e. the factors that enable venture
emergence after the decision to become an entrepreneur has been made3. The implementation
phase is arguably a phase particularly plagued with uncertainty, ambiguity, and in which the
nascent entrepreneur faces many obstacles in reaching his/her goal of creating an operational
venture. For instance, nascent entrepreneurs typically face resource constraints. Being a
newcomer in the market also means that they have little legitimacy in the eyes of potential
customers and suppliers. Not surprisingly then, a great number of aspiring entrepreneurs
disband their venture due to the hardship they face (Delmar and Shane, 2003). Overall the
implementation phase requires intense work effort over an extended time to complete
multiple, challenging tasks and deal with uncertainty and setbacks (e.g. Reynolds and Curtin,
2009). In other words, nascent entrepreneurs need to be willing to work hard and be persistent
in their goal pursuit despite the high uncertainty and obstacles faced.
Drawing on goal setting and socio cognitive theory (Bandura 1991; Bandura and
Locke 2003; Locke and Latham 1991), we suggest that nascent entrepreneurs’ with high start-
up motivation and entrepreneurial self-efficacy will find it easier to deal with the challenges
of creating an operational venture.
Start-up motivation refers to the entrepreneurs’ willingness to exert effort in the
venture creation process to “make the venture work”. Thus, start-up motivation reflects the
entrepreneurs’ commitment to the goal of creating a venture (Dimov, 2010). The higher 3 This is important as the relative importance of variables influencing the decision vs. implementation phase of the entrepreneurial process may vary (see Baron 2007).
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nascent entrepreneurs’ start-up motivation, the greater the chances that an operational venture
will be created. This is consistent with goal setting theory (Locke and Latham, 1991, 2002)
which more generally finds that goals energize individuals to work harder and smarter,
resulting in better task performance. In particular, the more individuals feel committed to
goals, as would be the case for nascent entrepreneurs with high start-up motivation, the more
successful are they at achieving them (Locke and Latham, 2002, 2004).
Another crucial determinant of whether or not individuals achieve goals is whether or
not they are confident that they have the skills and abilities needed to perform all the required
tasks. In particular, self-efficacy, or expectations of personal efficacy determine whether a
“…behavior will be initiated, how much effort will be expended, and how long it will be
sustained in the face of obstacles and aversive experiences” (Bandura 1997, p. 191).
Evidence across a range of populations, research domains (from academic achievement,
health behaviors to work performance), and methodological approaches (field and laboratory
studies) provides consistent evidence that efficacy beliefs are significant contributors to
motivation and performance (see Bandura and Locke 2003 for a review).Creating an
operational venture requires substantial confidence into one´s abilities to face the challenges
ahead and to persist when facing obstacles (Markman and Baron, 2003). Consistent with this
view, entrepreneurial self-efficacy has been found to be predictive of progress in establishing
an operational venture (Cassar and Friedman, 2009; Townsend, Busenitz and Arthurs, 2010).
To sum up, start-up motivation and entrepreneurial self-efficacy (hereafter referred to
simply as motivation and self-efficacy) are important determinants of whether or not nascent
entrepreneurs complete the implementation phase and succeed in creating operational
ventures. We suggest below that community cultural norms influence venture emergence
through impacting these two key supply-side variables4. To define relevant aspects of culture,
4 There might be additional influences of culture on the initial decision to become an entrepreneur. However, our focus is on the success of the implementation process of nascent entrepreneurs and not on the factors that incline them to become nascent entrepreneurs in the first place.
Hopp & Stephan, 2012 12
we draw on Stephan and Uhlaner’s (2010) cross-national research. Their research suggests
that two independent, higher-order dimensions capture the main variation of cultural norms
across countries and that these two dimensions – performance-based and socially-supportive
socio-cultural norms – are relevant to entrepreneurship.
2.3.1 Performance-based socio-cultural norms and nascent entrepreneurs’ motivation and
self-efficacy
Performance-based cultures are cultures which reward individual accomplishment
(Stephan and Uhlaner, 2010). They reflect “the extent to which a community encourages and
rewards innovation, high standards and performance improvement” (Javidan, 2004, p. 239).
Entrepreneurship is an achievement- and performance-orientated activity (e.g. McClelland
1976; Rauch and Frese 2007), in which individuals expend effort in return for expected
financial and non-financial rewards. Non-financial rewards include for instance the high
levels of autonomy, job satisfaction and well-being that entrepreneurs enjoy (Stephan and
Roesler 2010; van Praag and Versloot 2007). In line with the notion of person-culture-fit
(Tung, Walls and Frese 2007), entrepreneurship thus should thrive in socio-cultural
environments which support performance-based behaviors including taking initiative,
working to high standards, and achieving success through one’s own personal effort rather
than through status or inheritance (McCelland 1976; Stephan and Uhlaner 2010; Weber
1930). We build on and refine this argument below.
Entrepreneurship is a legitimate behavior in performance-based cultural contexts as it is in
line with wider societal expectations of taking one’s life in one’s own hands and working hard
to achieve a goal. Entrepreneurs who conform to these expectations, i.e. entrepreneurs who
work hard and show the culturally approved “can do attitude” will find it easier, relatively
speaking, to create an operational venture. Important stakeholders such as business partners,
suppliers, financiers, customers and employees are more likely to regard these entrepreneurs
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as capable and legitimate as they closely conform to their cultural expectations about effective
performance-based behavior.
Conversely, entrepreneurs who are less aligned with cultural expectation around
performance-orientation are more likely to withdraw from venture creation. These are
entrepreneurs who are less determined to create a business, i.e. they are less willing or able to
work very hard to create a business and/or have more doubt about their entrepreneurial
abilities. These less strongly motivated and less self-efficacious entrepreneurs will be less
legitimate in the eyes of important stakeholders as they are misaligned with the cultural norm.
In other words, important stakeholders will have less faith in these entrepreneurs to succeed in
creating successful businesses and consequently are less likely to support them. This in turn
makes it yet more difficult for these entrepreneurs to create operational businesses and
consequently they are more likely to give up their venture creation efforts.
In sum, we suggest that the expectation to demonstrate a hard working attitude combined
with determined and confident high-performance behavior is stronger in performance-based
cultures. Thus strongly motivated and highly self-efficacious entrepreneurs will thrive in these
cultural contexts. They will be seen as legitimate by important stakeholders and consequently
have relatively easier access to resources, both of which are crucial to succeed in creating
operational ventures. Conversely, less strongly motivated and self-efficacious entrepreneurs
will experience more difficulties as they are seen as less legitimate and less likely to succeed
by important stakeholders and consequently will find it difficult to access important resources.
In other words, performance-based cultural norms in a community are likely lead to
endogenous matching between the norms and corresponding compatible potential
entrepreneurs. Highly motivated and self-efficacious entrepreneurs fit more closely, and
comparably less strongly motivated and self-efficacious entrepreneurs fit less well with
performance-based cultural norms. Thus,
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H1: The perception of performance-based cultural norms is positively associated with
higher levels of H1a) start-up motivation and H1b) entrepreneurial self-efficacy in nascent
entrepreneurs.
2.3.2 Socially-supportive institutional environment and nascent entrepreneurs’
motivation and self-efficacy
As much as entrepreneurship is a performance-based behavior and success in the
venture creation process is due to the efforts of the nascent entrepreneur, entrepreneurship is
also a behavior contingent on social support through others (e.g. Stephan and Uhlaner 2010;
Thornton et al. 2011). Nascent entrepreneurs are likely to lack the resources that are needed to
complete all relevant and critical tasks to create a new business (Pfeffer and Salancik, 1978;
Davidsson and Honig, 2003). Indeed the major challenge in creating an operational venture is
to access sufficient resources, both tangible, such as finance and also intangible such as
information and emotional support (e.g., Aldrich, Rosen and Woodward, 1987; Bruederl and
Preisendoerfer 1998; Hitt et al., 2011). The importance of the various types of social support
for the venture creation process are most frequently discussed with reference to social capital,
or the “goodwill that is engendered by the fabric of social relations and that can be mobilized
to facilitate action” (Adler and Kwon 2002, p. 17). According to Cope, Jack, and Rose (2007),
the term social capital also applies to broader external networks such as actors in the
community, who might help founders to coordinate the foundation process more effectively.
Thus an environment in which various community actors from local investors, through
government, to community groups actively support business creation efforts is likely to
enhance entrepreneurs’ access to resources and make their venture creation efforts ultimately
successful. In turn, the display of support by various community actors gives the emerging
venture added legitimacy with its various stakeholders thereby further enhancing its chances
of success. Cross-national evidence supports this reasoning and finds cultures with stronger
Hopp & Stephan, 2012 15
socially supportive norms to have higher subsequent rates of business creation (Stephan and
Uhlaner 2010).
We suggest that the perceptions of community support from government, financiers and
local groups will increase nascent entrepreneurs’ motivation to expend effort in the venture
creation process, thus making its success more likely. In other words, the more nascent
entrepreneurs perceive community support to be available, the more they will feel motivated
to “keep going” and invest greater effort in the venture creation process rather than abandon
it. Venture creation is typically a long, effortful process. Knowing that “one is not alone” and
can tap into community support and resources if need be, is reassuring for the nascent
entrepreneur and motivates them to forge ahead in their venture creation efforts. For instance,
past research within work settings shows that the perception of the availability of social
support impacts employees’ work motivation (Van Yperen and Hagedoorn 2003).
H2a: The perception of socially-supportive institutional environments is positively
associated with higher levels of start-up motivation in nascent entrepreneurs.
Socially supportive institutional environments may also empower nascent entrepreneurs
through building their entrepreneurial self-efficacy. Research in organisational behaviour
suggests that socially supportive cultural environments enhance individuals’ self-efficacy
beliefs (e.g. Choi and Chang 2009). In such environments individuals feel safe to experiment
and try out various things without fear of failure, thus increasing their faith in their abilities to
master challenges. Such behaviours are arguably also critical to venture creation efforts,
where barriers abound and entrepreneurs often need to engage in trial and error to find which
course of action gets them further in their venture creation efforts (Sarasvathy 2001).
Supportive environments which allow for such experimentation have a greater tolerance
towards making mistakes and failures, which is crucial for learning and developing mastery
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beliefs (e.g., Edmondson, 1999, 2004; Stephan and Uhlaner, 2010; also Gelfand, Frese and
Salmon, 2011). Thus,
H2b: The perception of socially-supportive institutional environments is positively
associated with higher levels of self-efficacy in nascent entrepreneurs.
3. Methodology
3.1. Dataset
We draw on the Second Panel Study of Entrepreneurial Dynamics (PSED II) dataset. The
PSED II is a representative survey of entrepreneurial activities in the United States that
portrays individuals during their business creation process. It describes the characteristics of
nascent entrepreneurs, documents the sequence of venture organizing activities, summarizes
the types and quantities of resources committed, and characterizes the new ventures. Detailed
descriptions of the methods and sampling used to generate PSED II and an overview on the
data structure can be found in Reynolds and Curtin (2009).
In late 2005, nascent entrepreneurs were first identified through telephone interviews with
a population-representative probability sample of 31,845 individuals of which 1,214
individuals were classified as active nascent entrepreneurs. A follow-up interview of these
nascent entrepreneurs was conducted in early 2006, and then followed by yearly interviews.
The last follow-up interview was completed in January 2010. In other words the PSEDII
provides longitudinal data on entrepreneurial activity over a time span of 5 years.
The original sample of active nascent entrepreneurs was identified through their answers
to screening questions as to whether they were intending to start a new firm, had already
carried out some activity to help start the business, expected to own part of the firm, and did
not already have an operational business. Nascent entrepreneurs were thus involved in an
ongoing but not yet operational start-up. This sampling strategy ensures representative data
Hopp & Stephan, 2012 17
and also alleviates distortions caused by survivor bias. Research commonly focuses on
existing firms thereby excluding those firms that were started but never became operational.
Throughout the data collection process, nascent entrepreneurs answered a detailed set of
questions about start-up activities designed to capture their progress in creating an operational
venture. The 5-year longitudinal data structure and the meticulous documentation of a large
number of start-up activities enables drawing causal inferences among dependent and
independent variables.
Figure 1 gives an overview of the number of respondents used in the present research.
Wave A in 2005/2006 identified 1,214 nascent entrepreneurs that returned the questionnaire;
the number drops subsequently due to non-response and disbandment of entrepreneurial
activities to 972 nascent entrepreneurs in Wave B (2007) and 746, 526, and 435 for Waves C
to E (2008, 2009 and 2010 respectively). Of all 1,214 nascent entrepreneurs sampled, 460
disbanded their venture and 228 perceived their venture as operational. Another 247 nascent
entrepreneurs reported ongoing activities as per Wave E, but did not perceive their venture as
operational. Lastly, 279 nascent entrepreneurs omitted at least one wave. These observations
are excluded from the present analysis.5 Our final sample thus consists of 590 nascent
entrepreneurs (see also end of section 3.2. below).
3.2 Dependent variable: Completion of entrepreneurial organizing activities
Researchers have discussed a wide variety of measures to determine the point at which a
nascent venture becomes an operational business: the ability to raise external money, the legal
establishment of the new venture, the first sales, a positive cash flow, reaching the break-even
point, etc. (Gartner and Carter, 2003; Davidsson and Gordon, 2011). Bygrave (1989) asserts
that the only way to know whether the new venture will generate persistent business is to wait
5 We tested for sample selection and attrition biases on our explanatory variables and whether or not respondents were omitting the filing of responses. Among the variables, only age and education influence the subsequent filing of responses positively (at the 1%, and 5% level, respectively). Hence, the sample studied resembles a slightly more educated and older population of nascent entrepreneurs than the initial sample of entrepreneurs. However, none of the other main explanatory variables is related to non-response across the waves.
Hopp & Stephan, 2012 18
until it is generating positive cash flows. Other researchers claim that there are limitations of
cash flow as a measure for the completeness of the organizing activities. For instance, Bhide
(2000) argues that cash flow is not likely to be an early goal of most high-potential new
ventures. Katz and Cabezuelo (2004) make the case that nascent entrepreneurs are not always
sophisticated enough to precisely calculate positive cash flows.
Our dependent variable is the occurrence of the first positive cash flow combined with a
self-reported measure of being operational (vs. disbanding the venture). Our measure thus
overcomes problems associated with the use of either researcher-defined or self-reported
outcome measures through combining the two. In particular, our dependent variable, venture
emergence, takes the value of 1 if nascent entrepreneurs’ ventures generate positive cash flow
– enough to cover managerial salaries – and entrepreneurs’ report that their venture is
operational. It combines questions A35 and A41 of PSED 2: whether monthly revenues ever
exceeded monthly expenses (including salaries for the managers), and whether, based on this
achievement, respondents would characterize their venture as being operational (Appendix 1).
We compare these with entrepreneurs that indicate to have terminated the venture. In
particular, we follow Delmar and Shane (2003) and investigate in the case of disengagement,
whether all entrepreneurs involved in the venture report disengagement. If others are still
working on the venture, we do not treat the venture as disbanded just because the key
respondent disengaged from it. If all members of the start-up team disengaged from the
venture, then our dependent variable takes on the value of zero. We omit the data if others are
still working on the venture as the venture is not yet disbanded (some people are “still trying”
to launch it). Similarly we exclude all respondents who are “still trying” to launch a venture as
per wave E. This procedure follows Davidsson and Gordon (2011) who suggest excluding the
“still trying” category (see also Parker and Belghitar, 2006) when investigating venture
emergence. The rationale is that those who are still trying after an extended period of time can
best be described as “dilettante dreamers” or hobbyists nascent entrepreneurs, who are
Hopp & Stephan, 2012 19
arguably not serious about their start-up efforts. For them the nascent phase captures
something qualitative different (Davidsson and Gordon, 2011; Parker and Belghitar, 2006).
To explore potential biases, we test whether differences exist between, on the one hand,
the sample of nascent entrepreneurs who engaged in first business activities within the 5-year
interval described above and the 24 month window prior to the first interview, and on the
other hand, those entrepreneurs who undertook their first activity prior to this 7 year period.
Gartner and Carter (2003) and Lichtenstein et al. (2007) suggest including only entrepreneurs
who reported first activity within 24 months prior to the first interview. Their approach is
similar to Delmar and Shane (2003), who, to accommodate potential censoring and selection
biases, included only start-ups that underwent activities within the year of the interview.
T-tests reveal that the two groups differ substantially in terms of education and labor
market experience (entrepreneurs that undertook their first activity prior to the specified 7
year time frame have on average an higher education and more labor market experience). To
avoid biases we use coarsened exact matching on education and labor market experience, to
make the sample coherent (Singh and Agrawal, 2011; Marx, Singh and Fleming, 2011).
Matching removes heterogeneity across groups and removes distortions and bias caused by
self-selection. We rely on the matching implementation in Stata, to choose the bins based on
Scott’s rule (1992) rather than providing cut-off points (Iacus, King, and Porro, 2011; Marx,
Singh, and Fleming, 2011).
In sum, our final sample consists of 590 start-ups. 279 observations are excluded due to
the omission of at least one wave. 247 observations are excluded because either others are still
working on the venture (hence, no disbandment took place although the respondent
disengaged from the venture) or the respondent indicated “still trying” as the status per wave
E. Information on the socio-cultural variables is missing for 27 observations, and for 15
observations at least one of the control variables is missing, reducing the sample to 646
observations. Lastly, we employ coarsened exact matching to reduce distortions caused by the
Hopp & Stephan, 2012 20
timing of activities based on differences in human capital endowments. This leads to the
exclusion of a further 56 observations for which no close match across the groups can be
found.
3.3 Analysis strategy
We estimate a standard probit model alongside an instrumental variable probit model
to analyze the effect of socio-cultural environments on entrepreneurial self-efficacy and start-
up motivation, and on the subsequent likelihood of venture emergence, As argued above, we
suggest that socio-cultural environments affect venture emergence not directly but rather
indirectly through impacting the supply side of entrepreneurship – in particular start-up
motivation and entrepreneurial self-efficacy. In other words, motivation and self-efficacy are
endogenously determined by socio-cultural environments.
In essence, start-up motivation and self-efficacy appear as causal variables in the
estimation model for venture emergence but are correlated with the error terms of such a
model (Block, Hoogerheide, and Thurik, 2011). This correlation is due to omitted variables,
such as perception of cultural norms as argued above. Given that individuals are likely to
display behavior in accordance with social norms prevalent in their environment, we need to
separate the indirect effect of social cultural norms from the subsequent performance
implications of the corresponding endogenous supply side variables. To accommodate this
endogenous nature of self-efficacy and motivation, we employ an instrumental variable
analysis where start-up motivation and entrepreneurial self-efficacy are instrumented by the
perception of the socio-cultural community environment (i.e. performance-based and socially-
supportive cultures).
Table 2 reports the “traditional” probit estimations without endogeneity correction and
the two instrumental variable regressions. In the presence of endogenous matching between
the environmental context and the entrepreneurial characteristics traditional probit estimates
are biased and the effect for supply-side variables is underestimated. Hence, we report both
Hopp & Stephan, 2012 21
approaches to make the models comparable and to discuss the issue of endogeneity as
suggested by our hypotheses.
3.4 Explanatory variables: Start-up motivation and entrepreneurial self-efficacy
Start-up Motivation: We follow Dimov (2010) and include questions from PSED II,
Wave A on start-up motivation into our empirical analysis (see Appendix 2). In contrast to
Dimov (2010) our measure of start-up motivation comprises of two questions, the third
question that was part of Dimov’s analysis based on the PSED I, was not included in the
PSED II. However, combining the relevant questions available in PSED II results in a
satisfactory Cronbach’s alpha of 0.71, comparable to Dimov (2010).
Entrepreneurial Self-Efficacy: We include a measure of specific (as opposed to
generalized) self-efficacy, measuring entrepreneurs’ confidence to succeed in their venture
creation efforts. We measure perceptions of entrepeneurial self-efficacy using the five
questions identified by Dimov (2010) (see Appendix 3). Respondents answered these
questions in Wave A of the PSED II study. They have a satisfactory Cronbach’s alpha of 0.68
in the present research.
3.5 Instrumental variables: Perceptions of community culture
Respondents’ perceptions of cultural norms in their community were gathered in
Wave A of the PSED II study. Stephan and Uhlaner (2010) found performance-based and
socially-supportive cultural norms to be the two independent factors underlying a wide range
of cultural dimensions. Informed by their study we applied confirmatory and exploratory
factor analyses to test whether a similar structure is underlying perceptions of community
cultural norms in the PSED II. We found a two factor model that shows excellent model fit.
All items loaded significantly and substantially (over .60) on one of two factors, with no
substantial cross-loadings. We termed the first factor performance-based culture. Its five
items characterize cultural norms relating to performance (Appendix 4 displays the items).
Cronbach’s Alpha reliability was .84. We labeled the second factor socially supportive
Hopp & Stephan, 2012 22
institutional environment (Appendix 5 displays the items) as it captures the availability of
social capital, or social support for starting entrepreneurs from various community sources
and actors. Cronbach’s Alpha reliability is .66.6
Our measure of community cultural norms is in line with multi-level theory and
particularly research on item-referents (e.g. Chan, 1998; Klein and Kozlowski, 2000) and
advances in cross-cultural research (e.g., Fischer, 2006; House et al., 2004). That is, the
questions specifically reference the community when they ask respondents about their
perceptions of typical behaviors in the community in which they live (Appendix 4 and 5).
3.6 Control variables
We operationalize human capital of nascent entrepreneurs using the most widely-cited
factors including formal education (e.g., Evans and Leighton, 1989; Dickson, Solomon, and
Weaver, 2008; Unger et al., 2011), labor market experience (e.g., Bosma et al, 2004), and
entrepreneurial experience (e.g., Robinson and Sexton, 1994; Bosma et al, 2004). A factor
analysis (with varimax rotation) yields a clear 3-factor structure for these three measures. The
underlying questions are shown in the appendices 6, 7 and 8. The variables are calculated for
solo entrepreneurs and entrepreneurial teams. In the latter cases, we include the average team
level human capital across all members of the entrepreneurial team.
Formal Education: In the PSED II, respondents were asked to indicate the highest
level of education that all members of the entrepreneurial team had completed. We recoded
6 To ensure that we are not only picking up national cultural norms with our measure, we tested for sub-national, regional variations in the perception of community cultural norms. We estimated two OLS regressions using performance based community culture and socially supportive institutional environment as the dependent variable respectively. We use information on 12 regions, cities and rural areas as made available in the PSED II dataset as predictor variables in our analysis. Coefficients for Midwest regions are negative and significant for both community cultures (ß= -0.273 and ß=-0.372, p<0.05 respectively). Coefficients for South Atlantic and Pacific are positive and significant for performance based community cultures (ß= 0.227 and ß=0.176, p<0.1. Lastly coefficients for both dependent variables are negative and significant for metropolitan areas cultures (ß= -0.097 and ß=-0.105, p<0.05 respectively). In other words, we find the perception of community cultural norms to differ across regions, which indicated that our measures tap into meaningful sub-national, regional cultural variation, rather than measuring national culture alone. These tests are of course not perfect as we define community to be smaller than any broad region (see introduction). Such fine grained information is not available in the PSED dataset however.
Hopp & Stephan, 2012 23
this variable, ranging from elementary school to PhD, into number of years of education (see
e.g. Davidsson and Honig, 2003; Iacus, King, and Porro, 2011, and Appendix 6).
Labor Market Experience: PSED II provides information about the years of work
experience in the industry a new venture is active in, years of full-time paid work experience,
and years of managerial, supervisory, or administrative responsibilities of the nascent
entrepreneurs. The Cronbach’s alpha is 0.72 across these three items (see Appendix 7).
Entrepreneurial Experience: We use information on the number of other businesses
the respondents previously helped to start as an owner, and the number of other businesses
they have owned. Cronbach’s alpha is 0.65 (Appendix 8).
Industry: Since the role of business planning can differ across industries, we account
for these effects by including industry dummy variables. We control for retail, consumer
services, health, consulting, manufacturing and construction, real estate and finance and other
industries. We omit “other industries” as the reference group in each regression to avoid
perfect collinearity. Inclusion of industry dummies is indicated in the corresponding table.
Age: We control for the age of the entrepreneurs, using the average over all team
members as indicated in Wave A.
Team Size: We control for team size using all team members as indicated by the
respondents to the questionnaire in Wave A.
Competition: We measure the perception of competition using a three-point scale. 3
means “there are many other businesses offering the same product or service,” 2 means “there
are few other businesses offering the same product or service,” 1 means “there are no other
businesses offering the same product or service.” (see Appendix 9).
Market Newness: We measure the perception of market newness by using the answer
to the question whether the product is unfamiliar to all, some or none of the potential
customers (Appendix 10). The variable uses a three-point scale. The scale is: “3” equals “all
customers will be unfamiliar with this new product or service”, “2” equals “some customers
Hopp & Stephan, 2012 24
will be unfamiliar with this new product or service”, and “1” equals “none of the customers
will be unfamiliar with this new product or service”. The variable represents newness of a
product to customers (see Dahlqvist and Wiklund, 2011).
4. Results
4.1. Descriptive statistics
Table 1 summarizes the details for the study sample of 590 nascent entrepreneurial
ventures. Among these, 30% considered their venture to be operational while some 70%
disbanded their start-up. These rates are similar to other studies that analyze the creation of
new firms in the US (Spletzer et al., 2004; Reynolds, 2009). On average, nascent
entrepreneurs in the sample have an education equivalent to 15 years of schooling and 13
years of work experience. Two out of three nascent entrepreneurs either owned a new venture
previously or helped someone to start a business.
[Insert table 1 about here]
4.2. Hypotheses tests
Table 2 reports the standard probit regression using the personal beliefs and socio-
cultural norms as independent variables and the instrumental variable results, including the
first stage estimates. Column 1 (model 1) reports the standard probit model with start-up
motivation and cultural norms as separate regressors. We see that in this standard probit
model none of the variables is significant at conventional levels. However, once we
endogenize start-up motivation (columns 2 and 3, models 2a and 2b), both performance-based
and socially supportive cultures influence start-up motivation positively (ß = 0.114, p < 0.05
and ß = 0.098, p < 0.05, respectively model 2a). Moreover, the coefficient for start-up
motivation turns significant (ß = 0.725, p < 0.01) and exhibits a positive sign for the effect on
venture emergence (model 2b).
Hopp & Stephan, 2012 25
A similar pattern of results is evident for entrepreneurial self-efficacy. The standard
probit model in column 4 (model 3, table 2) reveals that self-efficacy has a positive and
significant impact on new venture emergence (ß = 0.245, p < 0.05), but none of the cultural
norms is significant at conventional levels. Once we control for possible endogeneity of
entrepreneurial self-efficacy (columns 5 and 6, models 4a and 4b), the first stage results
document that performance-based cultures raise the level of entrepreneurial self-efficacy (ß =
0.099, p < 0.01) and in turn, the impact of entrepreneurial self-efficacy on venture emergence
increases strongly (ß = 1.210, p < 0.01).
[Insert table 2 about here]
The Wald test of exogeneity (p=0.069 and p=0.097) reveals that the instrumental variable
approach reported is warranted. Moreover, when regressing the instruments and control
variables on the instrumented variables the corresponding F-statistic is significant at the 1%
level for both regressions. In addition, we also tested for the suitability of our instruments
using the Amemiya-Lee-Newey minimum chi-square statistic (Amemiya, 1978; Lee, 1992;
Newey, 1987). For both socio-cultural instrumental variable models, the null hypothesis of
valid instruments is not rejected. The instruments are therefore suitable and the model is not
over-identified. These tests suggest that results from standard probit analysis are biased and
should not be interpreted (Kennedy, 2008; Block, Hoogerheide, and Thurik, 2011).
In sum, the two instrumental variable regressions document evidence that controlling for
endogenous selection into entrepreneurial activities matters, i.e. community cultural norms
influence start-up motivation and entrepreneurial self-efficacy.
Hopp & Stephan, 2012 26
5. Discussion
Drawing on a 5-year longitudinal study of nascent entrepreneurs and their venture creation
efforts, we tested mechanisms by which informal institutions – in particular the perception of
socio-cultural norms – impact the business creation process. In line with our arguments we
found that community-level cultural norms influence venture emergence indirectly through
their impact on nascent entrepreneurs’ start-up motivation and entrepreneurial self-efficacy
beliefs, i.e. key supply-side variables. Performance-based and socially-supportive community
cultural norms shape important individual beliefs, which in turn determine whether or not
nascent entrepreneurs succeed in creating operational ventures. We found full support for our
hypotheses that performance-based culture impacts entrepreneurial self-efficacy and start-up
motivation. For socially-supportive institutions we found the hypothesized influence on start-
up motivation but not on entrepreneurial self-efficacy.
We believe that our study makes two important contributions to the relatively under
researched field of cultural norms and entrepreneurship. First, our study contributes to
research on culture by providing a fresh perspective of community-level as opposed to nation-
or regional-level culture and the importance of these community-level cultural norms for
venture emergence.
Second, it highlights culture’s role as a “background” variable in that cultural influences
on entrepreneurial behavior may best be considered as indirect effects impacting key supply-
side variables, in our case important individual beliefs. We show that entrepreneurial self-
efficacy and start-up motivation are endogenously influenced by community-level culture. In
doing so, our research provides a conceptual framework to bridge and integrate the literatures
on culture on the one hand and individual-level determinants of entrepreneurship such as self-
efficacy on the other hand. Here our study goes beyond past research that either equated
culture with individual-level personality characteristics or proxies culture by the region or
country in which the entrepreneur lives (e.g. Thomas and Mueller 2000). It also advances past
Hopp & Stephan, 2012 27
research which used culture scores from existing data bases and merged these with country-
level prevalence rates of entrepreneurship – neglecting for the most part individual-level
antecedents (e.g. Stephan and Uhlaner 2010; Uhlaner and Thurik 2007; Wennekers et al.
2007).
Taken together, our findings re-iterate the need for more contextualized theories of
entrepreneurship (Baker, Gedajlovic and Lubatkin 2005) and show that cultural norms matter.
They also provide evidence that culture influences individual-level antecedents of
entrepreneurship rather than treating these individual factor as rooted purely in individual
experiences and perhaps even genes (e.g. Nicolaou, Shane, Cherkas, Hunkin and Spector,
2008).
Our research is the first to demonstrate these relationships for community-level culture
and in a longitudinal study of venture emergence. It complements recent cross-national, cross-
sectional research which finds similar associations on aggregate country-level scores of
national culture and national aggregates of individual beliefs (Stephan and Uhlaner 2010).
Taken together, our research highlights how embedded in the local, community context
entrepreneurial behavior and its immediate antecedent beliefs are.
Our results with regard to performance-based culture are the strongest. They indicate
that these cultures encourage and support those with strong start-up motivation and
entrepreneurial self-efficacy to complete the venture creation process. These determined “can
do” entrepreneurs align closely with the cultural performance norm and are thus more likely
to be seen as legitimate, more likely receive support from key stakeholder and are more likely
to succeed in creating an operational venture. The opposite is true for less strongly motivated
and self-efficacious nascent entrepreneurs who are less likely to receive support as they do not
align with the cultural norm. At first, such selection processes seem to be a good thing as they
may deter those nascent entrepreneurs who are less likely to create operational businesses
from wasting time and effort in pursuing an entrepreneurial career. Nevertheless, when
Hopp & Stephan, 2012 28
overall levels of entrepreneurship are already low in a community, such selection processes
may not be desirable, particularly as there may be other means to support those with lower
self-efficacy in the venture creation process and indeed in building the necessary
entrepreneurial self-efficacy and motivation. Whilst, in performance-based cultures such
individuals may be discouraged from pursuing entrepreneurial careers early on and are more
likely to give up early in the venture creation process thus precluding any opportunity to
provide support to them.
With regard to socially-supportive culture we found the expected effect on start-up
motivation. The implication is that the perception of available community support from
government, financiers and local groups reassures and motivates the nascent entrepreneur to
expend effort. It will be relatively easier for nascent entrepreneurs in such socio-cultural
environments to access important resources when creating their ventures and to legitimize
their venture in the eyes of important stakeholders due to support from important community
actors.
The second influence path that we hypothesized – that socially-supportive culture
influences entrepreneurial self-efficacy – was not supported. This is surprising as a past cross-
national study found support for an equivalent relationship in which socially-supportive
cultural norms impacted entrepreneurial self-efficacy and business creation efforts in turn
(Stephan and Uhlaner 2010). The probable explanation lies in the somewhat different
measures of socially supportive culture. The current study focused specifically on the socially
supportive institutional environment, i.e. the extent to which nascent entrepreneurs perceive
relevant community actors to be supportive, including government, financiers and community
groups. By contrast, Stephan and Uhlaners’ measure captured a more generic notion of
socially supportive culture. This was socially supportive culture as the cooperative norms
resulting from how friendly and supportive people in a culture are in general. Thus it may be
that self-efficacy takes relatively long to develop and is furthered by the underlying
Hopp & Stephan, 2012 29
cooperative norms in a society. However, support available from various institutional actors
within a community does not seem to have the same effect on entrepreneurial self-efficacy.
Our research is characterized by a number of strengths. The early stage screening within
PSED II ensures that the data are representative and more importantly, reduces distortions
caused by potential survivor bias. The re-interviewing over the course of five years and the
fine grained capture of venture organizing activities over this period facilitates causal
inferences among dependent and independent variables. The combination of emerged and
terminated ventures along with our matching to ensure sample homogeneity allow us to
overcome limitations associated with right censoring and heterogeneous time horizons for
nascent entrepreneurship (Dimov, 2010; Davidsson and Gordon, 2011; Lichtenstein et al,.
2007).
Our study improves upon past research by employing entrepreneurship-specific
measures of cultural norms rather than using generic measure of culture unrelated to
entrepreneurship. Past studies on culture and entrepreneurship typically draw on measures of
general culture such as Hofstede’s values (e.g. Wennekers et al. 2007). This could be
problematic as entrepreneurs are typically a minority within their own culture – the majority
of the workforce across countries works in dependent employment arrangements. Thus it may
be that perceptions of general culture do not capture those aspects of culture particularly
relevant to entrepreneurs. In particular, the only other study we know of that investigates
cultural norms in relationship to entrepreneurship measures generic performance-based and
socially supportive cultural norms (Stephan and Uhlaner 2010). Our study supplements this
research by contributing and validating a measure of these cultural dimensions specifically
tailored for and relevant to entrepreneurship. Future research could combine both general and
entrepreneurship-specific measures of cultural norms and also cultural values to further
advance our understanding about how culture impacts entrepreneurship.
Hopp & Stephan, 2012 30
No study is perfect and ours is no exception. The perceptions of community cultural
norms as well as nascent entrepreneurs’ reports of their motivation and self-efficacy were
both collected in Wave A of the PSED II survey. This opens the possibility of common
method bias affecting the reporting of both cultural norms and personal beliefs. However,
several facts make common method bias a less likely explanation of the current findings.
First, in terms of questionnaire design, the questions we used to measure our constructs of
interests were distributed across the entire questionnaire which captured many more
constructs, thus reducing the likelihood that respondents answered them in a similar fashion.
In addition, the question on cultural norms and nascent entrepreneurs motivation and self-
efficacy use different item referents – descriptions of community-level behavior vs.
evaluation of own beliefs – which further alleviates common method bias concerns. Second in
terms of statistical controls, we conducted Harman’s one factor test on all items included in
our model as recommended by Podsakoff and Organ (1986). If common method bias occurs
then one common factor should be extracted. We found no evidence for such a factor.
Finally, drawing on multi-level theory and in particular research on item-referents we
suggested that our study captures community-level culture. We see community-level culture
as nested within and influenced by national culture, but at the same time also distinct from
community-level culture. Equivalent research in organizational behavior finds organizational
cultures to be influenced by national culture but also to be distinct from them (e.g. House et
al., 2004). We found first empirical evidence that our community-level cultural norms indeed
capture sub-national variation by finding that they vary across geographical regions (see
footnote 6). However, we look forward to future studies measuring both community- and
national culture within the same study to build robust evidence on their relationship and on
their relative influence on entrepreneurial behavior.
Hopp & Stephan, 2012 31
While we adopt a geographical definition of community, other definitions, e.g. ethnic or
professional community, are also possible7. Thus although the term seemed self-evident in our
research, respondents might have understood it differently. Future studies could explore
respondents’ concepts of community and when surveying respondents could provide a more
fine-grained description as to what they mean by community.
In line with the extant literature, we have stressed the importance of high self-efficacy
believes for entrepreneurs’ success in creating operational ventures (e.g. Cassar and
Friedman, 2009; Rauch and Frese, 2007). However, there could be “too much of a good
thing”. It may be possible that there is an inverted u-shaped effect (e.g. Warr, 2007) such that
highly self-efficacious entrepreneurs in later, less uncertain stages of the entrepreneurial
process (e.g. managing an operational business on a daily basis) suffer from overconfidence in
their skills and thus make less optimal decisions (Koellinger, Minniti and Schade, 2006).
6. Conclusion
Policymakers are interested in increasing entrepreneurial activity (Gilbert, Audretsch, and
McDougall, 2004). On the country level, new firm entry through entrepreneurial activities can
enhance economic growth, innovation, and productivity (Aghion et al., 2009). Our work
documents that enhancing entrepreneurial activity has more facets, than a dichotomous
decision to become an entrepreneur might reveal. In line with literature that sees
entrepreneurship as a locally embedded phenomenon, we find that entrepreneurs and their
personal characteristics differ widely across sub-national, community cultural contexts. Thus
the community context should be taken into account when tailoring assistance and advice to
entrepreneurs. Our research highlights the embeddedness of entrepreneurial behavior and its
immediate antecedent beliefs in the local, community context.
7 We thank an anonymous reviewer for pointing this out.
Hopp & Stephan, 2012 32
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Appendix
Table 1: Summary Statistics and Correlation Matrix
Summary Statistics and correlation matrix are based on 590 observations. All correlations above 0.1 are significant at least at the 5% level.
Hopp & Stephan, 2012 38
Table 2: Probit and Instrumental Variable Regression
(1) (2a) (2b) (3) (4a) (4b) Standard
Probit IV-Probit 1st Stage
(motivation)
IV-Probit 2nd Stage (venture
emergence)
Standard Probit
IV-Probit 1st Stage
(self-efficacy)
IV-Probit 2nd Stage (venture
emergence)Self-Efficacy
0.245** (0.033)
1.210*** (0.009)
Motivation 0.0870 (0.210)
0.725*** (0.008)
Performance Based Culture
0.105 (0.201)
0.114** (0.012)
0.0912 (0.268)
0.0990*** (0.001)
Socially Support-ive Institutional Environment
0.0585 (0.437)
0.0984** (0.024)
0.0627 (0.403)
0.0247 (0.333)
Labor Market Experience
0.059*** (0.000)
0.020*** (0.007)
0.037** (0.045)
0.057*** (0.000)
0.016*** (0.000)
0.033* (0.095)
Education 0.0165 (0.611)
-0.0722***(0.000)
0.0615* (0.068)
0.0116 (0.720)
-0.00833 (0.480)
0.0180 (0.554)
Entrepreneurial Experience
0.0617 (0.373)
0.00527 (0.903)
0.0500 (0.445)
0.0606 (0.383)
0.0108 (0.677)
0.0401 (0.548)
Market Newness -0.0774 (0.335)
-0.0133 (0.786)
-0.0572 (0.455)
-0.0766 (0.341)
-0.00614 (0.835)
-0.0608 (0.431)
Competition -0.0249 (0.737)
-0.0767* (0.091)
0.0290 (0.689)
-0.0237 (0.748)
-0.0276 (0.313)
0.00664 (0.926)
Team Size 0.0189 (0.787)
-0.0114 (0.789)
0.0235 (0.720)
0.0206 (0.769)
-0.00876 (0.733)
0.0279 (0.673)
Age -0.028*** (0.000)
-0.014*** (0.004)
-0.015 (0.148)
-0.027***(0.001)
-0.012*** (0.000)
-0.012 (0.330)
Retail -0.0789 (0.701)
-0.0589 (0.639)
-0.0257 (0.895)
-0.0999 (0.628)
0.0723 (0.339)
-0.164 (0.406)
Consumer Services
0.0901 (0.574)
-0.0851 (0.384)
0.132 (0.380)
0.0685 (0.670)
0.0691 (0.240)
-0.00684 (0.966)
Health -0.101 (0.690)
-0.115 (0.448)
-0.0133 (0.956)
-0.150 (0.555)
0.178* (0.052)
-0.304 (0.226)
Consulting 0.232 (0.353)
-0.171 (0.277)
0.309 (0.188)
0.193 (0.441)
0.106 (0.261)
0.0617 (0.808)
Real Estate/Finance
0.106 (0.639)
-0.0370 (0.793)
0.115 (0.591)
0.101 (0.657)
0.0241 (0.776)
0.0638 (0.769)
Manufacturing/Construction
-0.290 (0.185)
0.00336 (0.979)
-0.249 (0.229)
-0.310 (0.158)
0.0971 (0.210)
-0.366* (0.077)
Constant -1.068 (0.119)
4.903*** (0.000)
-4.094***(0.008)
-1.697** (0.029)
4.282*** (0.000)
-5.723***(0.009)
Observations 590 590 590 590 590 590 Wald Chi--Square
42.28 63.90 45.30 62.35
Wald P-Value 0.000 0.000 0.000 0.000 Notes. Marginal Effects, p-values in parentheses, * p<0.1, ** p<.05, *** p<.01
Hopp & Stephan, 2012 39
Appendices – Measurement Scales Overview
Item numbers refer to the numbering in the PSEDII dataset.
Appendix 1) Dependent Variable: Venture Emergence
A35: What was the first month and year in which monthly revenue was greater than all
monthly expenses, including salaries for the owners active in managing the business?
A41: It would appear that you are (IF ONE OWNER: managing /IF TWO OR MORE
OWNERS: helping to manage) an operating business -- one with sales and revenue greater
than the ongoing expenses including salaries. Would you agree with this description of the
current status?
Appendix 2 and 3) Personal Characteristics
For all questions below, respondents were asked: Would you say that you strongly agree,
agree, neither agree nor disagree, disagree, or strongly disagree?” We reverse coded responses
such that higher values reflect higher self-efficacy and motivation.
2) Start-up Motivation (cf. Dimov, 2010, Cronbach’s Alpha in current study .71) Y9. There is no limit as to how long I would give maximum effort to establish this new business. Y10. My personal philosophy is to “do whatever it takes” to establish my own business.
3) Entrepreneurial self efficacy (Dimov, 2010, Cronbach’s Alpha in current study .68) Y4. Starting this new business is much more desirable than other career opportunities I have. Y5. If I start this new business, it will help me achieve other important goals in my life. Y6. Overall, my skills and abilities will help me start this new business. Y7. My past experience will be very valuable in starting this new business. Y8. I am confident I can put in the effort needed to start this new business.
Hopp & Stephan, 2012 40
Appendix 4 and 5) Community-level culture
For all questions below, respondents were asked: “Now I would like to talk to you about the
community in which you now live. Please tell me whether you agree or disagree with the
following statements. Would you say that you strongly agree, agree, neither agree nor
disagree, disagree, or strongly disagree?” We reverse coded responses such that higher values
reflect stronger performance-based and socially-supportive culture as well as stronger self-
efficacy and motivation.
4) Performance-based culture (Cronbach’s Alpha .84) P 1. The social norms and culture of the community where you live are highly supportive of success achieved through one’s own personal efforts. P2. The social norms and culture of your community emphasize self-sufficiency, autonomy, and personal initiative. P3. The social norms and culture of your community encourage entrepreneurial risk-taking. P4. The social norms and culture of your community encourage creativity and innovativeness. P5. The social norms and culture of your community emphasize the responsibility that the individual has in managing his or her own life.
5) Socially-supportive institutional environment (Cronbach’s Alpha .66) P7. State and local governments in your community provide good support for those starting new businesses. P8. Bankers and other investors in your community go out of their way to help new businesses get started. P9. Community groups provide good support for those starting new businesses.
Hopp & Stephan, 2012 41
Appendix 6 through 10) Control variables
6) Formal Education (cf. Iacus et al., 2011; Davidsson and Honig, 2003):
H6. What is the highest level of education (you have/[NAMEa] has) completed –- (up to the
eighth grade, some high school, high school degree, technical or vocational degree, some
college, community college degree, a bachelor’s degree, some graduate training, a master’s
degree, or a law degree, medical degree, or Doctorate?)
7) Industry Experience (cf. Bosma et al, 2004, Cronbach’s Alpha in current study .72)
H11. How many years of work experience (have you/has [NAMEa]) had in the industry
where this new business will compete?
H20. How many years of full time, paid work experience (have you/has [NAMEa]) had?
H21. For how many years, if any, (have/has) (you/[NAMEa]) had managerial, supervisory,
or administrative responsibilities?
8) Entrepreneurial Experience (cf. Bosma et al, 2004, Cronbach’s Alpha in current study
.65)
H12. How many other businesses (have you/has [NAMEa]) helped to start as an owner or
part-owner?
H13. Besides the new business discussed in this interview, how many other businesses (do
you/does [NAMEa]) own?
9) Competition (cf. Dahlqvist and Wiklund, 2011)
S2. Right now, are there many, few, or no other businesses offering the same products or
services to your potential customers?
10) Market Newness (cf. Dahlqvist and Wiklund, 2011)
S1. Will all, some, or none of your potential customers consider this product or service new
and unfamiliar?
a This question is repeated for each member of the start-up team.
Hopp & Stephan, 2012 42
Figure 1: Sample overview
Population-representative probability sample n=31,845 (Wave A)
Wave A: 1,214 nascent entrepreneurs 30,631 non-nascent entrepreneurs excluded
Wave E: 460 disbanded ventures 228 operational ventures 247 “still trying” 279 non-response These entrepreneurs omitted at least one wave B-E.
Included in present study Included in present study Excluded from present study
688 (460 + 228)
646 included in matching 42 excluded due to missing data on control or independent variables
Final sample: 590 start-ups 56 excluded due to lack of availability of matching case (with equivalent education and labour market experience due to matching)